Ninety-three percent of Americans believe that Elvis Presley is dead, leaving 7 percent who think he might still be alive. This statistic reveals not only a peculiar belief but also a stark reality about public perception; specifically, that 7 percent of the population may not be thinking critically.
Furthermore, a statistic showing 93 percent or more of a consensus is almost decisive. The Elvis factor, which stands at 7 percent, is negligible enough not to warrant serious consideration. Any numbers lower than that can largely be dismissed as statistical noise.
According to the Bureau of Labor Statistics, the unemployment rate dipped to 5.3 percent in June, marking the lowest point since April 2008. This change is particularly noteworthy given that economic growth has remained sluggish since the recovery commenced in 2009.
While we should commend this headline statistic, we must also analyze its implications critically. An unemployment rate of 5.3 percent indicates that an impressive 94.7 percent of the labor force is currently employed.
Interestingly, the Elvis factor seems to overshadow the unemployment rate. Even amidst such seemingly favorable statistics, there will always be a contingent of individuals—potentially up to 7 percent—who remain unemployable. This threshold is an inherent issue that policymakers cannot easily overcome. Simply flooding the credit market will not magically create jobs for everyone.
Where Has the Labor Force Gone?
Given these findings, the Federal Reserve might do well to consider their efforts complete. Instead, they should possibly reevaluate their approach by engaging in community service, which would undoubtedly add more value than their current monetary policies.
Attempting to reduce the unemployment rate by manipulating the money supply is largely futile. Such efforts could be compared to a carpenter attempting to frame a door jamb using a jackhammer; the damage it could do would far exceed any potential benefit.
Yet, the Fed may still pursue this path. Presently, Janet Yellen and her colleagues are deliberating whether it is time to raise the federal funds rate, which has been hovering near zero. Shouldn’t a 5.3 percent unemployment rate signal that the moment has arrived? So what is causing the hesitation?
Unfortunately, this 5.3 percent figure reveals only part of the picture. The other half is less encouraging: the labor force participation rate—representing those who either have a job or are actively seeking one—sits at just 62.6 percent, the lowest it has been since 1977.
So, what has happened to the remaining 37.4 percent of potential workers? Some of this decline can be attributed to baby boomers opting for early retirement. However, this alone does not explain the full story. A number of workers have likely turned to long-term freelancing—often out of necessity due to a lack of well-paying full-time positions.
How the World Becomes Unrecognizable
The persistent weakness in the labor market leaves the Fed perplexed. Coupled with low consumer price inflation, this has created a dilemma for them. They are reluctant to raise the federal funds rate until both sectors show greater stability.
“Though the recovery has been slow, there has been substantial cumulative progress,” stated Fed Vice Chair Stanley Fischer at the Economic Club of New York in late March. “An increase in the federal funds target range will likely be warranted before the year’s end. Liftoff should occur when the expected benefits of raising the interest rate surpass potential costs.”
Fischer’s anticipated benefits, however, remain elusive. This is particularly troubling, given the tangible consequences of the Fed’s current strategies. The realities of stocks, bonds, and sovereign debt—beyond just places like Greece and Puerto Rico—are all intricately tied to cheap credit. Presently, these systems appear to be nearing a tipping point, if they haven’t already crossed it.
When the inevitable downturn begins to occur, it will become glaringly clear that the Fed’s maneuvers, along with other central banks, have not been worth their while. The fundamental reality is that any jobs created through cheap credit are often minimal and may not have been directly influenced by the Fed’s policies at all. Moreover, many of these jobs could vanish long before this cycle concludes.
What happens next? Will the Fed resort to pumping even more credit?
The answer is obvious: they likely will. Yet, with each new wave of credit expansion initiated by the Fed, the world becomes increasingly distorted and difficult to recognize. In truth, it has already become unrecognizable.
Sincerely,
MN Gordon
for Economic Prism
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